India and the Belt and Road Initiative

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Leiden University Faculty of Humanities

India and the Belt and Road Initiative

A G e o - e c o n o m i c P r o j e c t t h r o u g h a S y s t e m i c P r i s m

Zsolt Trembeczki

Supervised by Dr Lindsay O. Black Submitted for the degree of: Master of Arts in International Relations (specialisation in Global Political Economy)

Word count: 14,997 6th of July, 2018, Leiden

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A b s t r a c t

While its economy desperately needs investments in infrastructure and manufac-turing, India not only refuses to join the Belt and Road Initiative (BRI), China’s massive regional interconnectivity project, but claims that it violates its sover-eignty and serves only China’s power ambitions. Some Indian analysts even argue that by establishing naval facilities in the Indian Ocean and strengthening land connection between China and Pakistan, the BRI is part of China’s encirclement strategy against India. Others downplay such arguments as products of unfound-ed distrust. Following a structural realist approach to evaluate the BRI’s implica-tions for the economic, military, and geopolitical balance of power between Chi-na and India, this thesis presents a more complex picture. It makes the case that the BRI indeed alters the relative distribution of power to China’s advantage, but both alarmist warnings about encirclement and optimistic hopes about the po-tential economic benefits are exaggerated or require stronger evidence.

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A c kn o wl e d ge m e n t s

I would like to thank my thesis supervisor Dr Lindsay O. Black for his help, guid-ance, openness, and constructive and encouraging criticism. I would also like to thank Michiel Foulon for being the second reader and for his early help in select-ing the proper theoretical approach for this thesis. I am grateful to my family for their support from such a distance; and to my neighbour for his support from next door.

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Abbreviations

AIIB Asian Infrastructure Investment Bank

BCIM Bangladesh–China–India–Myanmar Economic Corridor BRI Belt and Road Initiative

CGE Computable General Equilibrium

CICPEC China–Indochina Peninsular Economic Corridor CPEC China–Pakistan Economic Corridor

FDI Foreign Direct Investment GDP Gross National Product PPP Purchasing Power Parity IOR Indian Ocean Region IR International Relations IRT International Relations Theory

LAC Line of Actual Control (India and China) LOC Line of Control (India and Pakistan) MOOTW Military Operations Other than War MSR 21st Century Maritime Silk Road OBOR One Belt One Road Initiative ODI Overseas Direct Investment PLA People's Liberation Army PLAN People’s Liberation Army Navy

POK Pakistani Occupied/Administered Kashmir PRC People's Republic of China

RMB Renminbi (Chinese Yuan)

SAARC South Asian Association for Regional Cooperation SLOC Sea Lines of Communication

SOP String of Pearls

SREB Silk Road Economic Belt U.S. United States of America USD United States Dollar

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Introduction

In September 2013 in Astana, Kazakhstan, Chinese President Xi Jinping proposed the creation of a ‘Silk Road economic belt’, and in October in Jakarta, Indonesia, a ‘21st century maritime Silk Road’. Since that time the so-called ‘Belt and Road Initiative’ (BRI)1 grown into a monumental geo-economic interconnectivity pro-ject2 that aims to connect China to its crucial Western markets via six land corri-dors on the Eurasian mainland and a ‘Maritime Silk Road (MSR) that stretches from China’s coastal areas to the Indian Ocean to the Mediterranean (see Map 1). The BRI macro-region encompasses more than 60 countries, is home for 3.2–4.4 billion people,3 produces approximately one third of the global economic output, and realises around 40% of global trade (ESCAP 2017: 853; Zhai 2018: 84; Villa-fuerte, Corong, and Zhuang 2016: 6). With an estimated cost between 1.4 and 4 trillion USD (Anand 2017: 15; ), railways, highways, oil and gas pipelines, seaports, airports, energy transmission lines, and industrial parks are to be built along the designated corridors, and economic policy coordination and trade facilitation will further promote trade, investments, economic growth, and people-to-people relations (National Development and Reform Commission 2015; Xinhua 2015).

While most invited countries reacted positively to the BRI, some estab-lished Asia-Pacific powers like the United States of America, Japan, or Australia are more sceptical about China’s intentions and the initiative’s benefits (Bisley 2017; Am. Acharya 2015b). More surprising is, however, the firm opposition India shows towards the Belt and Road Initiative. With its central position in the BRI’s geographical scope and desperate need for infrastructural investments (Global

1_{Alternative English translations of the project’s name are ‘One Belt, One Road’ (OBOR) or}

‘Belt and Road’ (B&R). This thesis consequently uses the ‘Belt and Road Initiative’ (BRI) version.

2

While various previous geo-economic initiatives based (or claimed to be based) on these ancient trade routes, such as the United States’ initiative to boost Foreign Direct Investments (FDI) in Afghanistan, India’s Mausam Project, or Japan’s Eurasian Diplomatic Initiative (see Hai-quan 2017: 135; Anand 2017: 4), neither is comparable to the BRI in terms of their geographical scope and the allocated resources.

3_{The difference between the estimations is likely the function of excluding or including}

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Infrastructure Outlook 2018) in order to maintain high rates of economic growth and provide opportunities to its young and dynamically growing population, In-dia on first sight could very logically be considered a great potential beneficiary of such a large-scale trans-regional connectivity initiative. This also seems to fit well the agenda of India’s current government. Prime Minister Narendra Modi and his Bharatiya Janata Party have long been considered fierce proponents of Hindu nationalism, but in 2014 they won landslide by campaigning not on a reli-gious pro-Hindu but a remarkably inclusive and development-oriented platform. Citing India’s central position and the mutual available benefits, Chinese policy makers indeed expressed their wish for India’s joining to the Belt and Road Initiative (Anand 2017: 4). The Indian government, on the other hand, accused the BRI with being designed exclusively to serve China’s interest. Moreover, Indi-an policy makers pointed out, the project effectively violates India’s sovereignty and territorial integrity as one of its components, the China–Pakistan Economic Corridor, passes through the Pakistani administered/occupied area of Kashmir (POK) which is also claimed by India. Many Indian scholars, analysts, journalists, and politicians also see the BRI, and particularly its maritime component, the MSR, as a mere re-branding of what they call China’s ‘String of Pearls’ (SOP) in the Indian Ocean. This alleged strategy is designed to encircle India by building formally commercial, but covertly or potentially military ports in India’s mari-time neighbourhood (see Map 2), such as the port of Hambantota in Sri Lanka or the port of Gwadar in Pakistan (Marantidou 2014).

This thesis is concerned with the question whether India’s concerns about the Belt and Road Initiative are reasonable or exaggerated. What gives relevance to this topic are the enormous geographical and financial scope of the BRI, and India’s central position in the BRI’s design, as China’s only potential peer compet-itor in Asia in terms of population, economic capabilities, and military power. But what gives relevance to this particular work is the surprising under-theorisation and under-researched status of the India–BRI nexus. While the Belt and Road Initiative itself draws major academic attention, India’s (lack of) role in it is clearly overlooked in the literature, and works that analyse the topic in a

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comprehensive and theoretically solid way are particularly scarce. Security-oriented approaches (which rarely define themselves as ‘realists’) are often based on speculations about the actual capabilities of BRI facilities, and ignore potential economic benefits. On the other hand, proponents of joining the BRI mostly ac-cept the notion of such benefits at face value, and do not support their optimism with actual econometric forecasts about the realistically expectable gains. Com-prehensive analyses that take both factors into account are particularly rare.

Filling this whole range of gaps in the literature, of course, would exceed the scope and limitations of this thesis. Instead what it aims for is the addressing of one key under-researched aspect of the topic, and the highlighting of further gaps that can be addressed in future works. In order to this, the thesis focuses on whether, as some pieces of the literature claim, the Belt and Road Initiative dis-advantages India against China on a systemic level, taking both economic, mili-tary, and geopolitical aspects into account. Following this introduction, a review of the existing literature demonstrates the aforementioned gaps; then the re-search question is clarified and the structural realist theoretical and methodolog-ical construct of the thesis is expounded. This is followed by two analytmethodolog-ical sec-tions. The first addresses the issue of the BRI’s implications for the economic di-mension of the balance of power between China and India, with one sub-section dedicated each for the prospects of long-term GDP growth, the changes in trade and energy security, and the shift in economic influence in other countries of the region. The second analytical section focuses on the BRI’s impact on India’s secu-rity and geostrategic environment, with separate sub-sections addressing the land and naval balance of power and the changing geostrategic characteristics of South Asian and the Indian Ocean Region.

In the final, concluding section the thesis makes the case that, on balance, the BRI affects India’s power position relative to the PRC slightly negatively, but abstaining from the project does not necessarily mitigates this negative impact effectively, while it deprives India from the potential absolute economic gains. It is also pointed out that further researches has to be done regarding the BRI’s ex-act capabilities and longer-term macroeconomic impex-act in order to fully

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stand how it affects both the balance of power and the prospects of growth for India, China, the Asia-Pacific, and the world.

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1. Literature Review

There is a rich international literature on the Belt and Road Initiative from the perspective of China, the existing U.S. led global and Asia-Pacific order, or the development of the BRI macro-region in general. Possible motives for the initia-tive on China’s part pondered by authors are the creation of alternainitia-tive or paral-lel regional institutions (Am. Acharya 2015b), the expansion of Chinese influence in its neighbourhood (Bisley 2016), the addressing of China’s post-2010 economic slowdown (Yu 2017) and internal regional differences (Summers 2016). Optimistic (Zhai 2017; Villafuerte, Corong, and Zhuang 2016) and somewhat more sceptical (Cheng 2016) assessments of its possible economic impact have been written, and established powers like the United States have been advised both to compete with China for control over sea lines of communication and regional influence (Ratner 2018), and for more openness towards the BRI and China’s growing role in forming the institutions of regional integration (Am. Acharya 2015b).

The literature on India’s firm opposition to the BRI, on the other hand, is less numerous as well as less comprehensive. Therefore this review first summa-rises the main driving factors behind the Sino-Indian relations, then describes the main elements of the BRI in India’s sphere of interest, and finally tries to highlight the main gaps and shortcomings of the literature on India’s optimal re-action to the initiative in order to find out in what way this thesis may contribute to this debate in the most meaningful way.

The complex and multi-layered nature of Sino-Indian relationship is point-ed out by numerous authors. Baspoint-ed on Bajpai (2015) and Alka Acharya (2015), the following such layers can be identified in order to present a brief but thorough summary of the topic. To begin with, there is an intensifying economic interde-pendence between the two countries, as by the early 2010s China has become In-dia’s number one trade partner. Alka Acharya (ibid) notes, though, that the range of India’s exports is still narrow, and there is a certain security-driven concern in India about Chinese investments in infrastructure and manufacturing. The two countries are also partners in a range of multilateral fora such as the G20, the

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‘Brazil, Russia, India, China, South Africa’ Group (BRICS), or the Shanghai Coop-eration Organization (SCO), as they share interests in areas like a multipolar world order, global trade, or international terrorism.

Sino-Indian relationship, however, is poisoned by territorial disputes, as China denies the legitimacy of India’s borders drawn by the British colonial au-thorities. The two countries share an approximately 4,000 km long disputed bor-derland, and in 1962 the PRC launched a border war that ended with India’s de-feat. Another factor of distrust is alliance pressure. Also, China has long been a major ally of India’s arch enemy, Pakistan, and uses it as a ‘distant balancing as-set’ (Holslag 2009: 813) against India. On the other hand, the current dominant power in the Asia-Pacific, the United States, considers India a strategic partner in balancing against China’s growing power in the region (Hornat 2016: 433; Am. Acharya 2015a: 367; Tellis 2015; Mukherjee and Malone 2011: 100–101; for U.S. gov-ernment documents see Trump 2017: 287). In 2007-2008 the Quadrilateral Securi-ty Dialogue (‘Quad’), an informal naval securiSecuri-ty forum between Australia, India, Japan, and the United States was formed in 2007-2008 to hedge against China’s rise, although Indian and Australian concerns over openly alienating China somewhat hampered this initiative (Sharma 2010). China’s recently growing in-fluence in regions like South and South-East Asia that India considers its tradi-tional sphere of interest is seen suspiciously by India’s part (Anderson and Ayres 2015). Difference between the political values of Chinese authoritarian one-party system and India’s pluralistic parliamentary democracy, and nationalistic senti-ments of the publics also undermine a substantial rapprochement.

Finally, these factors of suspicion and competition are particularly unnerv-ing for India because of a growunnerv-ing power disparity vis-à-vis the PRC. Beunnerv-ing in a rough parity in the 1950s, China’s economy in the mid-2010s was around 4.5 times bigger than that of India, which allows for considerably bigger defence budget or investment flow to other countries in the region. Since 2015 Indian economy grows faster than the Chinese, but China’s edge in the already achieved economic and social progress, foreign exchange reserves, FDI and ODI stock, and military spending remains overwhelming.

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In the light of these layers, many analysts in India see the BRI through a highly securitised lens. The initiative has four main elements that reaches India’s direct and relative neighbourhood (see Map 1 above). The Bangladesh–China–

India–Myanmar Corridor (BCIM) is perhaps the least contested among them, as it

was originally founded as a regional connectivity forum between the participant countries well below the launch of the BRI. The China–Pakistan Economic

Corri-dor (CPEC) runs from Kashgar in Western China to the Port of Gwadar in

Paki-stan, creating land connection between China and the Indian Ocean. India’s offi-cial refuse of supporting the BRI was in large part based on the fact that the CPEC enters Pakistan through the POK, seen as a violation of India’s sovereignty and territorial integrity. The 21st Century Maritime Silk Road (MSR), the maritime component of the BRI, stretches from China’s coastal area through the Indian Ocean to East Africa and the Mediterranean, and encompasses maritime facility development projects like port constructions, some of which in fact date back to the 2000s and the early 2010s (Joshi 2011a: 566; Holslag op. cit.: 830).

Much of these projects, and especially the MSR, has from India’s perspec-tive been seen as the re-branding of an alleged Chinese strategy, the so-called ‘String of Pearl’ (SOP), that aims for the encirclement of India by establishing na-val bases in the Indian Ocean (Marantidou 2014: 1). But suspicion is not limited to the BRI’s maritime element. Gupta (2015) sees the expansion of the Karakorum Highway (the backbone of the CPEC) as part of a ‘Great Game’ in which China and Pakistan are aiming to threaten and destabilising India. Sibal (2017) greeted India’s absence from the Belt and Road Forum on the basis that its connectivity lines serve China’s interests, and joining the BRI would be equal with accepting China’s supremacy in Asia. Vasan (2016) also greeted India’s refute of joining the BRI for similar reasons, adding that facilitating further Chinese led port construc-tions would only worsen India’s already high trade deficit with China. Krupakar (2015) ponders if a project of this scale would not necessitate the growing profile of Chinese military in India’s proximity. Even some Chinese authors note implic-itly that the BRI can be used to gain power at India’s expense: Haiquan (2017: 143– 144) calls for using the CPEC and Pakistan to pressurise India.

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A surprising feature of this security and geopolitics oriented body of litera-ture is an apparent lack of clearly defined theoretical background. While, given their securitised focus, they could be considered belonging to the realist tradition of IRT, they rarely if ever position themselves in any school of IRT or offer clearly defined theoretical and methodological constructs from which they would derive their claims and conclusions. The use of concepts such as ‘international struc-ture’ or ‘relative distribution of power’, for example, is surprisingly absent for works that are centred on how the BRI allegedly enhances China’s power at In-dia’s expense. Thakur (2016) identifies multiple reasons behind this apparent un-der-theorisation of Indian international relations (IR) literature. One is a belief that academics from the Global South are justified to ignore IRT, a ‘Western con-struct’. Another reason is the dominance of English language over the field of IR, which deters non-native speakers from engaging in discourse over such linguisti-cally challenging fields as IRT. One main reason according to the author, which is also referred by Mallavarapu (2015: 44–45), is an obsession among Indian scholars and funding institutions with a misguided understanding of ‘policy relevance’ that, in Thakur’s (op. cit.: 143) words, downplays ‘abstract theoretical approaches [as] time-wasting’.

The downside of such an anti-theoretical understanding of policy relevance is that the lack of clearly set theoretical and methodological constructs may re-sult in arbitrary choosing between aspects to analyse and evidences to take into account. Heterodox arguments against India’s participation (such as the CPEC’s violation of India’s sovereignty in the POK or the lack of respectful dialogue) may be factual observations from an India-centric viewpoint. Systemic level claims that the BRI tilts the balance of power between India and China to the latter’s fa-vour, however, would require more thorough elaboration. They should take into account not only the suspicion of the military usage of MSR facilities or the past role of the Karakoram Highway in the Sino-Pakistani military cooperation. They should also address the BRI’s implications for factors like trade, investments, and growth. Economic capabilities are not universally but widely accepted as im-portant factors of state power even in the realist literature (see Section 2 of this

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thesis), and it is also one dimension where China’s edge over India is one of the biggest (see, for example, World Bank 2018b and 2018d). While the BRI may en-hance China’s ability to deploy naval forces in the Indian Ocean, it may also dress some of the major shortcomings of Indian economy, which would be ad-vantageous from New Delhi’s perspective. Whether this effect of the BRI would outweigh the alleged disadvantageous military implications is, of course, uncer-tain, but also cannot be ruled out entirely. This comparison has certainly been absent from the geopolitically oriented pieces of literature though.

While realist (or, rather: securitised) approaches to the BRI’s implications for India, as it has been demonstrated, very often lack a solid theoretical ground-ing, pieces of literature on the opposite side are also not free from shortcomings. To be sure, the Indian Government’s negative decision has been criticised for many reasons and from the angle of various (including liberal and constructivist) theoretical viewpoints. Some authors, for example, emphasise the potential abso-lute economic gains that India loses by abstaining from the BRI. Palit (2017) con-cluded that while India’s bureaucratic and infrastructural shortcomings would limit the country’s potential gains, the Indian government would still have been better advised to embrace the initiative, precisely in order to overcome these weaknesses. Jacob (), while being sympathetic to India’s anxieties, on balance al-so finds that India’s participation in the BRI would be quite beneficial. Although not arguing explicitly in favour of joining the BRI, Rhagavan (2016) warns against framing India’s own connectivity projects as rivals to the BRI, as smaller coun-tries in the region, being put in a situation where they need to take either India’s or China’s side, may easily decide against India.

The problem with this group of analyses is not un-similar to that of the problems of securitised pieces of literature. First, there is a relative shortage of economic forecasts and projections when the BRI’s longer term economic im-pacts are concerned. Assuming certain positive imim-pacts for China, India, and other participating countries merely on the basis that the BRI aims to boost in-vestments in the region’s infrastructure may be a logically solid position. Still, the aforementioned geopolitical concerns could have been relativized in a more

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ible way if rigorous economic projections confirmed the alleged infrastructural and welfare gains for India. This leads to the second main shortcoming of this ‘BRI optimist’ body of literature, which is that it makes little effort to actually en-gage with the arguments of security based analyses, and to take also their per-spectives into account when examining the overall benefits of the BRI. While se-curitised works paid little attention to the economic dimension, economy orient-ed works similarly downplayorient-ed the security dimension of the BRI’s implications for India, without deconstructing such argument thoroughly.

There is a set of markedly constructivist analyses on the topic , in which In-dia’s negative attitudes towards the Belt and Road Initiative are largely the prod-ucts of paranoia, misperceptions, and lack of information on the Indian side. The thesis works of Hielscher (2017) and Van Alphen (2015), both written at Leiden University, represent this approach. Regardless of how relevant such viewpoints are, however, they certainly do not fill the gap of rigorous assessments of eco-nomic and military implications.

Perhaps the most balanced explanations for India’s refusal to join the BRI and the initiative’s strategic implication for India is offered by authors who put it in the context of a complex security dilemma and geopolitical interplay between China and India. Mohan (2015a, 2015b, 2014a, 2014b, all cited by Pitlo and Karam-belkar 2015: 667), for example, accepts the arguments that China’s growing pres-ence in littoral states of the Indian Ocean largely aims for controlling sea lines of communication. Still, the author warns against too much reliance on the ‘narrow prism of geopolitics’ (Mohan 2015b, quoted by Pitlo and Karambelkar 2015: 669– 670); instead, geopolitical narrative should be balanced with ‘economic com-monsense’ [sic], and India should cooperate in connectivity projects with China

and the United States and Japan at the same time. As for New Delhi’s opposition

to the BRI, Mohan (ibid) warns for the ‘dire consequences’ of India’s marginalisa-tion in the geo-economic transformamarginalisa-tion in Asia and the Indo-Pacific’. Similarly to Mohan’s argument, Khurana (2016a) recognises the existence of a security di-lemma, but calls for ‘less realism’ and a ‘more constructivist’ approach that would emphasise the possibility of win-win outcomes.

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Following a geopolitical, though by no mean deterministic, approach, Brew-ster (2017) describes how the Indian Ocean Region (IOR) has historically been a closed geopolitical space, which, however, can be transformed by the connection of China with the IOR through overland corridors like the CPEC or the Bangla-desh–China–India–Myanmar (BCIM) economic corridor. In this account, India’s aim is to inherit dominant status in the Indian Ocean from the U.S., and to main-tain it as a closed and easily controllable space, China’s transformative geo-economic project, however, threatens with the overriding of the region’s funda-mental character and thereby the fundaments of India’s long-term regional ambi-tions. Brewster (ibid: 278) also warns, though, that the two countries’ interpreta-tion of A.T. Mahan’s thoughts on naval power is out-dated and too zero-sum ori-ented.

These nuanced analyses of Mohan, Khurana, and Brewster, that are based in geopolitics but pay attention to absolute economic gains and ideational factors as well, certainly provide interesting perspectives on the interplay of these factors in the Sino-Indian relationship. They, however, still lack reference to any thorough analysis of the BRI’s projected macroeconomic impact, which should be a key fac-tor either in a (structural or neoclassical) realist or a liberal account.

To summarise the conclusion of this review, a large part of existing litera-ture on India’s reaction to the BRI suffer from three main, strongly interrelated shortcomings, at least from an epistemologically positivist and explanatory point of view. First, there is an apparent theoretical thinness. Secondly, many writings do not address the structural implications of the BRI and operate with non-systemic explanations for India’s opposition, such as the CPEC passing through the POK or China not engaging in proper dialogue with India. This is problemat-ic not only from a structural realist but also a neoclassproblemat-ical realist and a liberal point of view, as systemic variables are important (though not the only or not the most important) factors even in these schools of IRT. Thirdly, most works that do elaborate on the BRI’s structural implication still limit their focus on one or more, but typically not all major dimensions of power in international relations.

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Security oriented accounts typically ignore economic factors; while economy ori-ented accounts fail to disprove security concerns in a substantial way.

These gaps and shortcomings in the existing literature motivated the for-mulation of the theoretical and methodological construct of this thesis, which is described in details in the next section.

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2. Theory and Methodology

In the light of the gap in the literature highlighted in the previous section, this thesis aims to present a single case study with the precise research question be-ing as follows: How does the Belt and Road Initiative alter the relative distribution

of power between China and India? Geographically speaking, the scope of the

the-sis encompasses the BRI’s primary land and maritime components, namely the Silk Road Economic Belt (SREB) and the 21st Century Maritime Silk Road, as well as the China–Pakistan Economic Corridor (CPEC) and the Bangladesh–China– India–Myanmar corridor (BCIM), the last two being ‘strongly related’ (Xinhua 2015) to the initiative. Primary focus is on BRI elements in India’s direct geo-graphical proximity, which are the MSR, the CPEC, and the BCIM (see Map 1). As for the time period encompassed in the thesis, the initiation of the SREB and the MSR was officially raised in October 2013 and the action plan for the BRI was ac-cepted by the Chinese Government in March 2015. However, certain related pro-jects, especially along the MSR, date back to as early as the 2000s or the early 2010s (see, for example, Joshi 2011a and 2011b; Holslag 2009). These projects are handled as integral parts of the BRI.

The research question’s reference to the ‘relative distribution of power’ im-plies a structural realist theoretical approach which is positivist in its epistemol-ogy and explanatory in its aims. The common fundamental assumptions of struc-tural (or neo) realist IRTs are as follows. The logically and empirically most solid model of international politics is an anarchic system that on the one hand con-sists of unitary, rational, and survival-seeking states as its units, and on the other hand of a structure that is defined by the relative distribution of power between these units. By constraining states’ behaviour, this structure, and not domestic factors like political systems, cultural differences, ideas, or individual agency, is the single most important determining factor in international politics.

The implications of such a system for states’ optimal behaviour are, howev-er, matters of disagreement between neorealist scholars. Defensive realists, like neorealism’s founding figure, Kenneth Waltz (1979), believe that conservative,

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self-restraining policies are optimal for great powers, as too assertive behaviour forces others into balancing coalitions, ultimately reducing the security of expan-sionist actors. Also, since purely structural defensive realism offers only theories of international relations, not of foreign policy, some defensive realist authors also add unit-level variables in their constructs. Examples are Snyder’s interest in domestic regime types, Van Evera’s emphasis of falsely optimistic pre-war per-ceptions (Snyder 1991 and Van Evera 1999, both cited by Mearsheimer 2006: 77), or Walt’s (1987, cited by Taliaferro 2000: 138) adding of perceived intentions to the factors of aggregated threat posed by states. Offensive neorealists, such as Mearsheimer (2001, 2006), on the other hand, believe that in an anarchic system where intentions are uncertain and military capabilities are inherently of both defensive and offensive use, aggressive power maximising is the only optimal be-haviour for great powers in order to ensure their own survival.

Since this thesis solely focuses on whether the BRI changes the relative po-sition of China and India in the international structure, hereby it is sufficient to accept structural realism’s fundamental assumptions about international rela-tions’ anarchic and state-centric nature. Taking side in the defensive–offensive debate over optimal foreign policy responses does not belong here, as this thesis first asks whether there is any shift in the structural distribution of power to begin with. It is necessary, however, to elaborate more on the concept of power, which is another point of debate in realist IRT. Mearsheimer (2001: 83–84) equates power with military capabilities and, given the ‘stopping power of waters’ on states’ ability to project power, with the strength of land forces. Economic output in his model is merely a latent indicator of potential military power. Waltz (op. cit.: 131), holds that (1) the size of population, (2) area, (3) resources endowment, (4) economic capability, and (5) political stability and competence are all, if not equally, but similarly important components of state power, and cannot be ‘weighted separately’ (ibid).

The power concept of this thesis draws from both elements of approaches, but adjusts them to the requirements of analysing a very concrete geo-economic project’s impact on two states’ relative power position. On the one hand, it

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sumes that power, indeed, has multiple similarly important dimensions, much the way Waltz defined it. Yet it also makes the safe assumption that the BRI has no substantial effect on India’s and China’s size of population, area, and govern-ance capacity, and thus excludes these dimensions from the analysis. It also ex-tends Waltz’s concept of ‘resource endowment’ to include access to distant stra-tegic resources such as energy or export markets. On the other hand, it follows Mearsheimer in paying attention to the geographical limitations of power projec-tion. Contrary to him, however, it employs the concept of ‘stopping power’ not only for large bodies of water but also for the high-altitude mountain ranges, ex-tensive deserts, and dense jungles that separate the Indian subcontinent from the Asian mainland.

Following these principles, the thesis assesses the impact of the BRI on the relative distribution of power between India and China (1) first in the realm of

economic power, including its impact on (1.a) GDP growth, (1.b) China’s trade se-curity, and (1.c) China’s and India’s regional influence through trade and invest-ments; then (2) in terms of military power and security, including (2.a) the

bal-ance of land and (2.b) naval forces, and (2.c) the reshaping of the general

geo-strategic character of South Asia and the Indian Ocean.

The impact of the BRI on these dimensions is evaluated as it follows:

(1) Balance of economic power. The BRI is expected to affect China’s economy in numerous ways, including the aiding of the development of land-locked provinces (Summers 2016), the boosting of China’s exports by redirecting excessive industrial and construction capacities (Zhai 2018: 86; Villafuerte, Corong, and Zhhuang 2016: 10; Haggai 2016: 11-12), or the strengthening of Chi-nese Renminbi’s (RMB) standing as an international currency (Callaghan and Hubbard 2016: 8). What this section aims to do is not to evaluate all these factors individually but to identify aggregated indicators of their overall impact; indica-tors that at the same time are comparable with India’s similar indicaindica-tors so that the overall balance of economic power between the two countries can be meas-ured.

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Gross Domestic Product (GDP), either in a nominal or a Purchasing Power Parity (PPP) basis, is a popular measure of states’ economic power. Breslin (2007: 8–13), however, warns that due to methodological problems, the unreliability of official statistical data, and the lack of governments’ actual control over much of local and private sector economic decisions and activities, the use of GDP for that purpose, and, in general, state-centric approaches to international political econ-omy, may be highly problematic, especially in China’s case. The use of GDP for measuring economic power of states is nonetheless justified for two reasons. First, despite all the uncertainties about its calculation, it is still a relatively well-defined and globally widely accepted indicator (see Eurostat et al.: 1993). Second-ly, hereby it is not understood as being identical with state power; it is rather used as an indicator of it. GDP measures the aggregated intensity of economic activi-ties on a state’s territory, and while Breslin is right on that national governments are not the sole actors making economic decisions, they, as Gilpin (2001: 15–22) points it out, are still the relatively most influential regulators of economic activi-ties. And while not all such activities translate directly into state power, taxing and regulating them provide governments with revenues, control over access to markets and capital, and influence over economic decisions. These components of state power are not identical with GDP, but are strongly correlating with it.

In the light of both these strengths and shortcomings of GDP, the thesis combines it with other, geographically also more sensitive indicators of economic power, which are trade security and regional influence derived from trade, in-vestments, and role in creating the institutions of regional integration.

(1.a) Impact on GDP growth. It is assessed how the BRI changes India’s

GDP relative to China by the end of BRI’s duration, which is approximately 2029-2030. If the current gap (see World Bank 2018b and 2018d) between the two countries is projected to grow in relative terms, it would be considered as affect-ing India negatively from a structural viewpoint, even if absolute gains are posi-tive on both sides.

(1.b) Impact on trade and energy security. The security of crucial sea

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the power of a state that is heavily dependent on the seaborne export of manu-factured goods and/or import of energy. These criteria apply both for China and India, but the BRI corridors (including its maritime facilities and overland gas and oil pipelines) are centred on the former, and are unlikely to affect the latter’s trade security; therefore only changes in China’s trade security are addressed hereinafter. If the BRI could reduce China’s vulnerability to a potential Indian disruption of crucial Indian Ocean SLOCs, this would result in India’s decreasing leverage over its northern neighbour, and consequently in a power shift to India’s disadvantage and China’s advantage.

(1.c) Economic influence in the region. China’s strengthening roles as a

major trade partner, source of investment, owner of infrastructural facilities, and formative force behind new institutions of regional integration also translate into power and influence. Ideally this sort of economic influence could be measured with indicators like share in other countries’ exports and imports, FDI inflow and stock, and crucial facilities like ports, airports, or energy networks. Such indica-tors, as in the case of GDP (see above), are not equal with one state’s economic influence over another but are key and relatively easily measurable and compara-ble components of it. China’s growing share in these dimensions relative to In-dia’s share in South Asian and IOR countries would therefore be considered as a sign of power shift between the two countries.

(2) Balance of military power. Because of the aforementioned stopping power of certain geographical features, the utility of comparing aggregate mili-tary data (milimili-tary spending, the number of active and reservist troops or certain types of military hardware, etc.) would be questionable. Instead, the thesis as-sesses how land and maritime infrastructural development projects related to the BRI enhance either state’s ability to deploy additional troops and adequate hard-ware in geographical spaces where a Sino-Indian military confrontation could re-alistically take place. Also, the analysis takes certain other actors into account, based on their significant role in the balance of power between China and India: one is Pakistan, a long-time strategic ally for China in balancing against India; and the other one is the United States, a more recent strategic partner for India

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in balancing against China’s growing naval presence in the Indian Ocean. Over-all, the Sino-Indian military balance will first be analysed in two broader geo-graphical theatres; then it will be evaluated whether the BRI changes the funda-mental geostrategic character of South Asia and the Indian Ocean Region in a way that is disadvantageous for India.

(2.a) Impact for land forces. The possible geographical theatre of a

Sino-Indian military conflict on land is dominated by the high-altitude mountain ranges of the Himalayas and the Hindu-Kush, north of which lays the Tibetan Plateau. Separating South Asia (including India and Pakistan) from China, these barriers allow only for the deployment of light infantry units, ideally with high-altitude training, mobile artillery, and helicopter support. Therefore two factors will be analysed here. The first is whether the BRI leads to the deployment of more Chinese troops in the aforementioned areas in numbers that threatens In-dia with a disadvantageous shift in the balance of numbers. The BRI does not reach the Tibetan Plateau or either the Eastern or Western Sector of the disputed Sino-Indian Line of Actual Control (LAC), therefore the analysis focuses on the CPEC corridor and India’s proximate territories. A shift in the balance of power is thus a function of how the number of Chinese troop deployments is proportion-ate to the number of Chinese, Pakistani, or Indian troops that are already station-ing in the territory of Pakistan, the POK, or the operational areas of the Indian Army’s Northern, Western, and Southern Commands. The second factor ana-lysed in this section is whether the CPEC makes infrastructure between China and Pakistan capable for the transportation of heavy weaponry such as Main Bat-tle Tanks to the above defined geographical area.

(2.b) Impact for naval forces. Considering that neither China nor India

has a global blue water naval reach, the balance of naval power between them is constituted only by naval forces stationed in the Indian Ocean Region. The im-pact of the BRI on this naval balance is measured by two factors. First is the number and composition of Chinese naval vessels deployed in the Indian Ocean Region, compared to the inventory of the Indian Navy as well as to the U.S. Fifth Navy that is stationing in the Western Indian Ocean. As for vessel types, aircraft

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carriers, amphibious transport docks, ‘other major surface vessels’ (destroyers and frigates), and submarines will be taken into account. The second is whether the military use of MSR facilities is confirmed or not.

(2.c) Impact on the region’s geostrategic character. After examining the

possible change in the balance of power between Chinese and Indian land and naval forces, a broader perspective on the South Asian and Indian Ocean regions’ geostrategic character is taken on. This character is described by various authors as being ‘closed’ and ‘self-encompassed’ because of geographical barriers (Brew-ster 2017: 270; Friedman 2008), which together provided post-colonial India with a considerable level of safety from external powers. This section analyses whether the BRI changes this closed character of South Asia in a fundamental way by cre-ating overland corridors between China, a previously separated Eurasian land power, and the Indian Ocean, and how China’s growing influence in both of In-dia’s northern and southern geographical frontiers affect InIn-dia’s security apart from the change of the previously assessed short-term military balance.

As for the sources of this thesis, the World Bank’s database is cited primari-ly for statistical data and estimations and projections from the secondary litera-ture (such as Zhai 2017 and Villafuerte, Corong, and Zhuang 2016) when the dif-ferent scenarios and aspects of the BRI’s future economic implications are exam-ined. Additional economic data are drawn from OEC (2018) and UNCTAD (2018). ISS (2018) is referred primarily for military data (such as the number of troops in certain units), but additional sources (e.g. Global Security 2018b) and pieces of secondary literature (Anand 2017; Brewster 2017; Hornat 2016; Khurana 2016b; Marantidou 2014; Joshi 2011a and 2011b; Holslag 2009) are also cited either for da-ta or for partial analyses. When recent events or developments (that are yet to be processed in the literature) have to be addressed, news articles (e.g. Pandit 2018; Pande 2017; Dutt 2015; Gupta 2015) are used in a limited way and with strict source criticism. Primary sources like Indian, Chinese, and U.S. government doc-uments also provide useful information for the thesis.

This model, of course, has numerous shortcomings and limitations. To begin with, it struggles with the lack or shallowness of much data that the

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retical and methodological construct of the thesis demands to be used. Important statistical data on trade, investment, and energy supply are partial, out of date, or only very rough estimates. Similarly, important military information is confiden-tial and accessible only parconfiden-tially. When the BRI’s impact for economic growth, trade, and investments are concerned, the thesis often has to rely on economic forecasts that not only are inherently uncertain, but (at least in this very narrow topic) quite rare in the literature. These limiting factors do not allow the summa-rising of the above described dimensions of structural power into one quantita-tive formula. Instead, they are evaluated separately, quantitaquantita-tively or qualitaquantita-tively depending on their nature, and assessed together qualitatively at the conclusive section of the thesis. In some measured dimensions the virtue of the thesis is less a clear-cut result, and rather that it directs light to further gaps in the existing literature.

Also, the model’s structural realist framework leaves it as a target of criti-cisms from the angle of neoclassical realist, liberal, constructivist, and critical IRTs. Possible targets of criticism are the construct’s simplicity, obsession with relative and downplaying of absolute gains, and fatalistic acceptance of anarchy, security dilemma, and power politics as the given nature of international rela-tions, instead realising the socially constructed nature of these properties.

Without questioning the relevance of such approaches to the topic of the Belt and Road Initiative and Sino-Indian relations, two main reasons justify the employment of a neorealist framework. First, a solid case could be made for that structural realism still has a considerable empirical founding when international relations in the Asia-Pacific are concerned. State-centrism and territorialism, a rigid Westphalian understanding of national sovereignty, and the often zero-sum understanding of international debates are characters of this region that even more pessimistic liberal authors warn of (see Haggard 2014; Shambaugh 2008: 4). Moreover, trends like a global rise in zero-sum competition (see Bremmer 2012), increasing U.S. unilateralism, or Russia’s aggression against Ukraine and territo-rial expansion indicate that state-centric structural realism remains at least one of the relevant approaches to the study of international relations.

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Second, as the research question makes it clear, the focus of this thesis is on whether the BRI has implications for India’s and China’s structural position rela-tive to each other, and not on how big the absolute gains are, or whether India was right or wrong for not joining the project, or what other factors may have had influenced this decision. While the research question inherently implies a structural realist approach, knowing the structure is a preliminary criterion even for neoclassical realist and liberal (and perhaps even some constructivist) anal-yses. This thesis does not claim to override such approaches, but to provide an important insight into one of the key factors of Sino-Indian relations.

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3. Economic and Geo-Economic Implications

3.1. Macroeconomic Implications

Spectacular claims have been made regarding the Belt and Road Initiative’s fi-nancial return and impact on the economic growth of participating countries. According to some sources the organisers promised 6-7% return for potential in-vestors (Anand 2017: 15). Some analysts deem that it already has boosted China’s GDP growth rate with 0.25 percentage point in 2015 (Huang 2016: 320). Ylander (2017), employing a regressive analysis of BRI’s impact on the GRP (Gross Region-al Product) of the affected Chinese provinces, found particularly high correlation between economic growth and highway constructions, railway constructions, ex-ports, and changing labour force productivity, and also significant correlation be-tween growth and the provinces’ coastal or landlocked geography as well as ur-ban employment. Such claims and findings, of course, cannot simply be extrapo-lated into the distant future and/or to other countries, and therefore cannot serve as the basis of this analysis. Rather, assessing whether the BRI would pro-vide China or India with greater relative gain by accelerating economic growth requires reliance on more detailed and comparable projections for over the entire course of the initiative.

The BRI affects the economic output of participating countries in two main ways: first directly, through investments’ contribution to GDP; and secondly indi-rectly, through reducing transactional and other costs and thereby increasing ef-ficiency (Haggai 2016: 12). These two mechanisms are taken into account in the works cited in this section. Villafuerte, Corong, and Zhuang (2016) employed a CGE (Computable General Equilibrium), or, more precisely, a GTAP (Global Trade Analysis Project) model to create comparative static simulations on BRI’s impact on trade and growth in Asia. The authors present three scenarios, all dis-played in Table 1 below.

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Table 1

The BRI: Gains in Real Income (Villafuerte, Corong, and Zhuang 2016)

India China Scenario 1

Welfare gain (billion USD) 0.41 3.26 Welfare gain (% of GDP baseline) 0.01 0.01 Export gains (billion USD) 0.71 3.2 Scenario 2

Welfare gain (billion USD) 15.22 4.91 Welfare gain (% of GDP baseline) 0.24 0.09 Export gains (billion USD) 5.9 24.5 Scenario 3

Welfare gain (billion USD) 8.77 24.25 Welfare gain (% of GDP baseline) 0.29 0.12 Export gains (billion USD) 7 36.9

Scenario 1 calculates only with the improvement of land and sea transporta-tion, weighted with the distance from China. In this scenario, both India and China gain only 0.01 percentage point rise compared to their respective baseline GDP. Scenario 2 further adds the impact of trade facilitation, and forecasts con-siderable higher gains: 0.24 percentage points in India’s and 0.09 percentage points in China’s case. Finally, Scenario 3 assesses the possible impact of un-weighted trade cost reduction. Gains in this least conservative version are magni-tudes higher than in Scenario 1: 0.29 percentage point for India and 0.12 percent-age point for China. Given its higher baseline GDP, China’s absolute gains are higher in every model, India, however, gains more relatively in the two more comprehensive scenarios (Scenario 2 and 3).

Another CGE projection, created by Zhai (2017), has even more optimistic conclusions from India’s point of view. Focusing on infrastructural development’s impact on trade costs and on energy efficiency, this study assumes that 1.4 trillion USD is spent on regional infrastructure between 2015 and 2029; fifth of it in

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na and the rest in other BRI countries. The BRI’s effect is, again, assessed in three, but this time cumulative scenarios, all detailed in Table 2.

Table 2

The BRI: Gains in Real Income (Zhai 2018)

India China Scenario 1: increase in investments (billion USD) 100 8

as % of baseline GDP 1.4 0.0

Scenario 2: effect of trade cost reduction (billion USD) 143 1.9

Scenario 3: effect of energy efficiency improvement (billion USD) 89 143

Accumulated gains (billion USD) 332 258

Scenario 1 merely adds the investments to BRI countries’ GDPs; Scenario 2 also brings in the effect of trade cost reduction; and Scenario 3 calculates with full implementation, adding the impact of increasing energy efficiency (ibid: 89). In this modelling, India’s gains both in relative and absolute terms exceed those of China in any scenarios, and India’s relative and absolute gains are significantly higher when investment increase, trade cost reduction, or absolute gains are con-sidered. Similarly, India would gain more increase in its investment stock by 2030. While Zhai does not explicitly give these data, based on the clearly stated absolute and relative gains it can be estimated that India’s baseline 2030 GDP in was approximately $US 7,378 billion and China’s approximately 23,455 billion USD in these models. This indicates that without the BRI India’s gross economic output would be 31.5% of that of China in 2030. With BRI’s full implementation (Scenario 3), India’s and China’s 2030 GDP are estimated to be 7,710 USD and 23,713 billion USD respectively. India’s GDP in this case would equal 32.5% of China’s GDP, indicating a small (1 percentage point) relative gain on India’s side (see Table 3).

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Table 3

The BRI: Change in Relative Size of GDP (Zhai 2018)

India China GDP (billion USD, 2030, World Bank 2018b) 2,597 12,238

as % of other party’s figure 21.2 471.2 Estimated GDP baseline (billion USD, 2030) ~7,378* ~23,455*

as % of other party’s figure 31.5 317.9 Estimated GDP with BRI’s effects (billion USD, 2030) ~7,710* ~23,713*

as % of other party’s figure 32.5 307.6 BRI investments (% of baseline, 2015–2029) 2.5 0.3 Change in infrastructure stock (% of baseline, 2030) 5.1 2.1 * Estimated by the author of the thesis, based on Zhai’s figures for absolute and relative gains.

Apart from the inherently uncertain nature of projections for future growth and other economic changes, a major limitation of the forecasts used for this sec-tion is that they are not based on the aggregated assessment of individual BRI projects or official figures on BRI spending per participating country. In the lack of such preliminary studies and data, they rather rely on estimates about other projects, and weight spending on the basis of BRI countries’ baseline infrastruc-ture stock (Zhai op cit.: 89). Also, Zhai as well as Villafuerte, Corong, and Zhuang do not compare exactly the same factors, therefore their projections differ in or-ders of magnitudes and neither can be considered a full assessment of BRI’s im-pact on economic growth. These are important constraints when it comes to drawing conclusions about the exact economic implications of the BRI.

On the other hand, all cited projections agree on one surprising element, that is India’s relative gain (and in Zhai’s work also India’s absolute gain) from the BRI in terms of GDP growth is expected to overwhelm that of China. If this is true, abstaining from the BRI in fact harms India’s power position at least in this very dimension. Of course, due to the aforementioned methodological limita-tions, the highly differing absolute results in the analysed projeclimita-tions, and the overall limited size of literature with exact predictions about the BRI’s

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nomic implications, this favourable outcome (from India’s perspective) cannot be presented as a certain, clear-cut conclusion. As it has been pointed out in the lit-erature review and the methodological section, the BRI’s expectable impact on economic growth in China and other countries is an under-researched topic. Un-less more analyses and forecasts are made on this topic by methodologically well-equipped economists, scholars and analysts of IR will not be able to assess the initiative’s full impact on the global and Asia-Pacific balance of power.

To conclude this section, in the light of this uncertainty on one hand, and that not only absolute but even relative gains for India are projected to be quite considerable in the (however limited) existing literature, the notion of a power shift to India’s disadvantage and China’s advantage in terms of long-term GDP growth and as the result of the BRI can certainly not be confirmed. Rather, the possibility of India, as the least developed party (which therefore gains more rela-tively from a similar amount of absolute gain), would be the overall economic winner in relative terms, has to be considered a plausible scenario.

3.2. Energy and Trade Security

As Section 3.1 demonstrates it, the exact macroeconomic implications of the BRI are opaque, but what little can be deduced from the extremely limited statistical data and relevant literature is that, at least in terms of sheer GDP growth, India may quite plausibly be the relative winner compared to China. Future economic growth, however, is inherently a matter of uncertainty. A possibly more calcula-ble aspect is the technical features of certain key BRI projects, such as the trans-portation capacity of major roads, railway lines, or gas and oil pipelines. The al-ternative these projects can offer to the highly vulnerable sea lines of communi-cation (SLOC) in the Indian Ocean, via which the vast majority of China’s inter-national trade currently flows, was an important motivation behind the BRI ac-cording to numerous accounts (e.g. Ratner 2018: 2–3; Brewster 2017: 282–285).

China’s export to GDP ratio skyrocketed from around 4–6% in the late 1970s and early 1980s to 37.2% by 2006, although it has decreased to 19.6% by 2016 (World Bank 2018e). Due to little westward land connectivity, in the mid-2000s

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and early 2010s around 60% of China’s international trade was seaborne (Holslag 2009: 829; Karim 2017: 77; Joshi 2011a: 567), much of which has to be shipped through the Western Pacific and the Indian Ocean. With respect to energy secu-rity, China imports above 60% of its oil and 30% of its natural gas consumption (Duan et al. 2018: 536). According to more recent figures, 42.5% of China’s oil im-ports originate in West Asia and 17.2% of it in Africa, and altogether 60% of it has to pass through the Strait of Malacca or other South-East Asian maritime choke-points. North African and West Asian oil also has to pass through the Bab-el-Mandeb and the Strait of Hormuz, respectively (Khurana 2016b: 5). Focusing more specifically to the Indian Ocean Region, around 90% of China’s hydrocar-bon imports (Joshi 2011a: 567; Erickson et al. 2010, cited by Hornat 2016: 429) and 40% of China’s all international trade (the latter adding up to 1.5 trillion USD; see Khurana 2016b: 4) are shipped through IOR SLOCs.

Despite the more recent transition for a less export and more domestic con-sumption driven growth model, these figures still indicate a very significant de-pendence on seaborne exports and energy imports. Alarmingly for China, all the concerned maritime regions are currently dominated by the U.S. Navy, while In-dia is a secondary but major naval power in the InIn-dian Ocean (see also Section 4.2 of this thesis). China’s crucial energy supply lines and export routes are thus highly vulnerable to disruption by the U.S., U.S. allies like Japan, or India. This extreme dependence on maritime chokepoints that are largely out of its naval control is often referred to as China’s ‘Malacca Dilemma’ (Hornat op. cit.: 429– 430; Yoshihara 2012: 491–492; Holslag op. cit.: 832).

The BRI could ease this dilemma in three main ways. First: China and other BRI countries already have a significant energy loss between each other due to grid oversupply and bottleneck effects. Developing electricity transmission infra-structure in the region could reduce this loss (ESCAP 2017: 586; Duan 2018: 541). Based on previous studies on cross-border energy infrastructure developments between China and Kazakhstan and China and the Greater Mekong Sub-region (Roland-Holst 2018 and IRM 2018 respectively, both cited by Zhai 2017: 89), it has been estimated that BRI investments in this area could raise the region’s overall

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energy efficiency with 2.5% by 2030. This energy saving could theoretically de-crease China’s reliance on seaborne hydrocarbon imports, although no thorough assessment of this particular relation has been made for so long.

Secondly: countries in the BRI region are estimated to possess approximate-ly the 58.8%, 79.9%, and 50% of the world’s proven oil, natural gas, and coal re-serves, respectively (IEA 2014, cited by Duan et al. 2017: 535–536). Others estimate the BRI to cover around 75% of all global energy reserves (Karim 2017: 78). Cen-tral Asian countries are particularly rich in hydrocarbons and, alongside China’s western provinces, have also great potential in hydroelectric, solar, and wind power that recently are becoming or are expected to become cost-effective (ES-CAP 2017: 586). Constructing new gas and oil pipelines and electricity transmis-sion lines between these regions, as well as Russia, and China on the other hand could reduce China’s dependence on seaborne energy imports.

Thirdly: overland corridors that connect China with MSR maritime facilities in the Indian Ocean Region can provide alternative routes for the currently vul-nerable Middle Eastern and African oil shipments. This rationale is especially im-portant in the case of the CPEC which, by connecting Western China directly with the Indian Ocean, would allow for bypassing India’s waters, the Bay of Ben-gal, and the Strait of Malacca. The Kyaukpyu–Yunnan pipeline between China and Myanmar, while still circumventing the Indian Subcontinent, would still by-pass the Strait of Malacca. Unfortunately, there is little reliable source or esti-mate about how big part of China’s current seaborne energy import could be re-oriented by BRI related projects. Energy pipelines are major components of the CPEC (Jacob 2017: 81-82, 87; Karim 2017: 77), but their exact planned capacity is not known. To the contrary, the capacity of the Kyaukpyu–Yunnan pipeline is known to be around 6.7% of China’s total 2015 oil import, but, due to growing demand, this will only be enough for 3.4% of China’s expected oil import in 2030 (Kong 2010, cited by Brewster 2017: 285).

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In the light of this, even if financial return is not considered,4 and the com-bined capacity of CPEC and South Asian pipelines will somewhat ease China’s reliance on oil shipments via vulnerable IOR SLOCs, this reliance still remains overwhelming. The case for the transportation of China’s not energy related im-port and exim-port is the same: Pakistan’s own, quite optimistic ambition is to carry about 5% of all of China’s cargo through the port of Gwadar (Brewster 2017: 284). This would be a significant boost of Pakistan’s role in organising China’s interna-tional trade, but would not cause a very significant decrease in China’s depend-ence on traditional trade routes. Moreover, poor security situation in both Paki-stan and Myanmar pose a significant threat to both project (Brewster 2017: 285).

In the dimension of trade security, the methodological section set China’s decreasing reliance on SLOCs that can be disrupted by India as the criterion for declaring that the balance of power between the two countries is shifting to In-dia’s disadvantage. On balance, by investing in energy connectivity with other BRI countries, especially with net energy exporters, and by constructing oil and gas pipelines between China and the Indian Ocean that bypass vulnerable IOR SLOCs and maritime chokepoints, the BRI positively does strengthen China’s en-ergy security. The lack of reliable estimates about the exact capacities of newly built corridors, however, makes this effect difficult to quantify. Consequently, this section confirms that India’s ability to disrupt China’s international trade and energy supply, and therefore India’s relative power against China, shrinks only slightly as the result of the BRI.

3.3. Economic Influence in the Region

Section 3.1 and 3.2 indicate that the BRI does not certainly or not significantly disadvantage India against China in terms of relative size of long-term GDP or ability to disrupt crucial SLOCs. However, when economic influence in other countries in the region, measured in share in international trade, investments,

4_{The price of oil carried via the Kyaukpyu–Yunnan pipeline is estimated at US$ 4 per}

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and ownership of key elements of infrastructure, is considered, the (somewhat scarce) statistical data and secondary literature shows a somewhat less optimistic picture from India’s perspective.

Where the situation resembles the most to the opaque picture of GDP growth is trade, in large part because the only analysis that presents exact quanti-tative projections about the BRI’s impact on it is Zhai’s (2018) work that has al-ready been cited in Section 3.1. According to this author, China’s exports to and imports from ‘other BRI countries’ (‘other’ than China or India) will grow by 2020 with 11.4 and 13.9 percentage respectively. India’s total export to and imports from ‘other BRI countries’, however, are expected to grow even more than Chi-na’s similar numbers; moreover, in India’s case, the growth of exports would out-perform the growth of imports (see Table 4). The magnitude of this shift and the difference between the absolute gains on the Chinese and Indian sides, however, cannot be deduced because the baseline of 2020 exports and imports is not given by Zhai. Therefore, and in the light of that this work is the only one in the exist-ing literature with exact country-wise forecasts about the BRI’s implications for trade, the notion that India would in fact be relatively the bigger benefiter in terms of trade cannot be considered a solidly confirmed finding.

Table 4

The BRI: Impact on Trade in 2020, % Change from Baseline (Zhai 2018)

India China

Total exports 16.2 4.0

Export to China 16.1 -

Export to other BRI countries 21.9 11.4

Total imports 13.2 4.0

Import from China 20.3 -

Import from other BRI countries 19.6 13.9

Detecting the direction to which the BRI tilts China’s and India’s share in FDI flow and stock relative to each other is easier. This is the case even if gaps and discrepancies in the data, the problematic classification of Chinese

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ment assistances (Anderson and Aryes 2015), and the lack of detailed country-wise FDA data since 2012 does not allow for a detailed comparison of trends be-fore and after the launch of the BRI. In 2012 China had 3,047 million USD FDI stock in members of the South Asian Association for Regional Cooperation (SAARC) other than India, although the bulk of it, 2,234 USD million, was in Pa-kistan. India with its 1,099 million USD FDI stock lagged behind China on an all-SAARC level, but had greater share in all all-SAARC countries other than Pakistan (UNCTAD 2018).

Either this balance changes substantially or not, the BRI in this matter per

definition works for China’s favour. While the exact distribution of the BRI’s

ap-proximately 4 trillion USD overall portfolio is unknown, a significant part of is necessarily directed into SAARC and other IOR countries: most of the CPEC is situated in Pakistan, the BCIM connects Bangladesh and Myanmar to China, while the MSR has maritime facilities all around the northern Indian Ocean, in-cluding Sri Lanka, the Maldives, Myanmar, Bangladesh, and Pakistan. Regardless of whether defined strictly as FDI or not, in practice every dollar sponsored by China and spent on these projects raise China’s share in the investment inflow and stock in these countries. On the other hand, while the possibility of India’s growing FDI outflow to these countries as the result of the BRI cannot be ruled out (this can happen, for example, as the result of better infrastructural condi-tions in these markets), this remains a (however likely) speculation, not, as it is the case with China’s growing investments, a logical and empirical necessity.

The BRI may, and in some cases already has enhanced China’s regional in-fluence also through the direct ownership or long-lasting lease of key infrastruc-tural facilities, such as ports, airports, or energy infrastructure. In the case of Hambantota, Sri Lanka, a major seaport and international airport has been built from Chinese loans, yet (partially due to the proximity of Colombo’s port) the project failed to become commercially profitable. A heavily indebted Sri Lankan government has eventually been forced to hand over the facilities to China for 99 years (Marlow 2018; Panda 2017). In 2017 October, China also gained 70% share in the port of Kyaukpyu in Myanmar (Brewster 2018b). Cambodia, the Maldives,

India and the Belt and Road Initiative